The Mayne Report - 18 March 2019

The Mayne Report: Corporate Travel shemozzle, Coles quits the pokies, AGM mini-season, Afterpay, ASA conference and AGM, AMP life sale, Bowen, old directors and some SPP activity

In today’s bumper edition of The Mayne Report, Stephen Mayne rakes over governance issues at Corporate Travel, celebrates Coles quitting the pokies, updates on Afterpay and suspended late reporters, gets back into the SPP game and reveals Chris Bowen was today at a cash for access fundraising lunch. There’s also a handy AGM mini-season calendar, not available anywhere else, amidst various other lively issues, including a look at age discrimination and disclosure with directors. Enjoy it all.

Overloaded Corporate Travel chair draws more unwanted attention to himself

Brisbane-based Corporate Travel Management has been getting skewered of late by The AFR’s Rear Window columnist Joe Aston and there was an interesting update today when the company lodged this 7 page response to an ASX query which basically tried to explain how some Family Court proceedings had led to confusion about earlier share sales and transfers by chairman Tony Bellas.

It was a fair question for the ASX to ask: why did it take a month to announce at 7.37pm last Wednesday that on February 14 the chairman had disposed of 82% of his stake in Corporate Travel Management for $4.5 million at the hefty price of $24.90 a share?

Turns out it was confusion emanating from the Family Court as chair Bellas separates from his wife Maria, something you rarely see discussed in an ASX announcement.

Even more embarrassingly, the company belatedly lodged its updated share trading policy with the ASX today, when it was approved by the board way back in 2017 and was meant to be lodged within 5 days of that decision.

As usual with governance snafus, it comes with a company which doesn’t have conventional governance, most notably in this case thanks to a chair who is massively overloaded.

Green lights to breach governance standards often come when you have a stock that has delivered in spades for shareholders, in this case a 5 fold increase in the stock price from less than $6 in 2014 to a record high of $31.46 in September 2018, before retreating to around $24 today.

Long term, Corporate Travel Management has been a good performer for shareholders as the company battles away with the likes of Flight Centre and Amex providing travel solutions for corporate customers.

However, the gloss has come off since it was attacked by short sellers and now it is in the cross-hairs of a media campaign which has become decidedly untidy.

Given that Tony Bellas is arguably the most over-committed chairman in corporate Australia, surely at least that workload issue could be addressed, if not by the company itself but then by the likes of Shine Lawyers, Novonix, State Gas and IntelliHR Holdings, which all continue to host him as chair.

He did try to retire from CTM at last year’s AGM but was then re-appointed as chairman through a casual vacancy straight after the meeting as the short selling campaign took hold and no one else would apparently take on the role.

Like today’s Family Court explanations, this announcement explaining that manoeuvre was also a first amongst the ASX200 club. Only in Queensland, folks!

Update on AGM mini-season: Coke, Bell, Moelis and OZ Minerals

There was a taster on the upcoming AGM mini-season in the last edition, which generated a response from Coca Cola Amatil, pointing out the following:

Re the reference to Coca-Cola Amatil and opposition to Container Deposit Schemes – the compared decided in late 2017 to start supporting cost-effective well-run container deposit schemes in NSW/ACT, Qld and the upcoming one in WA.

Since then we’ve worked with the governments in each of those states to help bring the schemes in, and publicly supported them. And of course we also support the SA scheme, as owner of Statewide Recycling which is a major collector of Adelaide recycling.

This doesn’t suggest that the sentence on historic opposition is wrong - just an update on where Amatil is presently at on CDS.

We also missed quite a few interesting AGMs in the preview, most notably CIMIC Group, the old Leighton Holdings, along with Bell Financial Group, Moelis, Spark Infrastructure, G8 Education, Alumina and Ooh Media, just to mention a few.

I travelled up to Sydney for the inaugural Moelis AGM last year, where they decided at the meeting to withdraw staff proxy votes on their remuneration report, as was explained in the June 11 edition of The Mayne Report.

This was quite remarkable stuff so it will be interesting to see what they do this year when they meet on May 2 in Sydney.

Bell keeps hiding out in Sydney, fails to appoint independent chair

Another interesting mid-cap which will have an AGM in the coming weeks is Bell Financial Group, which is often in the thick of capital raising practices which deliver sub-optimal outcomes to retail shareholders. Bell used to hold these gatherings in their Melbourne head office at 101 Collins Street, so it was logistically easy to drop in and give the board a solid workout.

Alas, in recent years they have decamped to Sydney for a much quieter time. I’ve emailed them and requested that the upcoming meeting scheduled for May 9 be held in Melbourne. Alas, at 2pm today they confirmed it was Sydney.

There is an interesting situation at Bell where chairman and co-founder Colin Bell has stood down as chairman for health reasons, but remains an executive director.

The CEO Alistair Provan has stepped up to be Acting Chairman, when it would make sense all round to have an independent non-executive chairman.

As page 6 of the 2018 annual report outlines, the Bell board is full of long serving blokes, with arguably none of them independent, based on having executive roles or length of service as non-executive directors. Of the current directors, the last new appointee was Brian Wilson way back in 2009. How many other public companies have no directors who have contributed less than 10 years of service?

The insiders control almost 50% of Bell, so they can pretty much do what they like, unfortunately.

There was one female director, Brenda Shanahan, between 2012 November last year, when she resigned without providing a reason. That would make for an interesting question at the AGM.

In other AGM developments, it is good to see that OZ Minerals shareholders will be given a chance to ask questions live during the AGM from home, which is sign of where things are going. See the details in the notice of meeting and online guide for a virtual AGM.

AMP did something similar last year so we’re looking forward to seeing its notice of meeting in the coming days.

Finally, to save you jumping between editions, here is the calendar for the AGMs of interest over the next two months, which is not presently available anywhere else. All of the early birds gathering in  April have now released their notices of meeting so you can also see what is on the agenda:

Comprehensive calendar for upcoming mini-season AGMs

Scentre Group: April 4, Sydney – see notice of meeting

CIMIC Group: April 11, Sydney – see notice of meeting

OZ Minerals: April 15, Adelaide – see notice of meeting

Iluka Resources: April 16, Perth – see notice of meeting

Atlas Alteria: April 17, Sydney – see notice of meeting

G8 Education: April 17, Surfers Paradise: see notice of meeting

MYOB: April 17, Melbourne (see notice of scheme meeting for KKR Takeover, so maybe no need for an AGM before end of May deadline)

Asaleo Care: April 30, Melbourne

AMP: May 2, Sydney

Iress: May 2, Melbourne

Moelis Australia: May 2, Sydney

Santos: May 2, Sydney

Woodside: May 2, Perth

Bell Financial Group: May 9, Sydney.

Caltex: May 9, Sydney

QBE Insurance: May 9, Sydney

Rio Tinto: May 9, Perth

Adelaide Brighton: May 10, Adelaide

Invocare: May 14, Sydney

Coca Cola Amatil: May 15, Sydney

GPT: May 15, Sydney

Ooh Media: May 16, Sydney

Appen: May 18, Sydney

Alumina: May 23, Melbourne

Viva Energy: May 23, Melbourne

Spark Infrastructure: May 24, Sydney

Sydney Airport: May 24, Sydney

Costa Group: May 30, Melbourne

In terms of those still yet to publish a date, Speedcast has been a little tardy although the meeting is expected in Sydney in May. A quick look at the Galaxy Resources website also failed to produce an AGM date in Perth as yet.

ASA and Kiwis show ASX listed companies how to do best practice board nominations

Speaking of AGMs, the Australian Shareholders’ Association AGM is coming up on May 21, straight after what is shaping up to be a cracking ASA annual conference in Melbourne on May 20 and 21.

I do like the board nomination approach taken by ASA where members have been clearly advised in the latest addition of the ASA magazine, Equity, that nominations for the board are open from February 26 until March 26. There is also this unlocked page explaining the process and key dates on the ASA website.

Unlike many unlisted entities, such as the pokies-dominated RSL Victoria (see Coles pokies divestment piece below), there are no stringent pre-qualification requirements for ASA board nominees, related to length of membership or positions held. If you join ASA tomorrow, all you need is for two members to nominate you before the March 26 deadline and you’ll appear on the ballot in the notice of meeting. This is how it should be with an easy nomination process clearly communicated in a timely manner.

The New Zealand listing rules require companies to make a stock exchange announcement clearly explaining the nomination dates well ahead of the AGM each year. Here are a couple of examples from Fletcher Building and Air New Zealand.

If only we had a similar system in Australia with ASX listed companies where it is often difficult to follow these processes because you first must find out when the AGM is being held and then you must trawl through the company constitution to see the nomination requirements, including the time frame, with most constitutions requiring either 35 or 45 business days notice.

Indeed, if we had the New Zealand system, I wouldn’t have had to spend two hours over the weekend and today trawling for AGM dates to produce the calendar above.

Should Chris Bowen be charging for access at today’s boardroom lunch in Melbourne?

The AFR has been running full page advertisements in recent days promoting Shadow Treasurer Chris Bowen as one of the headline acts at its big 2019 Banking and Wealth Summit to be held on March 26-27 in Sydney.

You can hear what Bowen and a range of luminaries have to say by shelling out $3295 for a standard registration.

As the incoming Federal Treasurer with a big reform agenda, Bowen is in hot demand and he’s not afraid to sell access to himself to raise funds for the Labor campaign.

For instance, Shireen Morris, the Labor candidate in Michael Sukkar’s seat of Deakin in Melbourne’s eastern suburbs, today joined Bowen at an intimate $2000 a head lunch hosted by law firm Gilbert Tobin on level 22 of 101 Collins Street.

You can still see the online booking form here. All funds raised went to Labor’s Deakin campaign.

I know this is standard practice but the governance and optics of cash for access arrangements are pretty poor, especially for such a powerful and sensitive role like Treasurer, which has enormous discretion on issues such as foreign investment approval.

The ASA has been frustrated at Labor’s refusal to move on franking credits so I even jokingly suggested we pay the $2000 to get another opportunity to directly lobby Bowen at today’s lunch. Unsurprisingly, we didn’t do that. It should be noted that Bowen did meet with our CEO Judith Fox last year.

With Labor’s lead lengthening in the polls, it looks like the party won’t need to compromise on its franking credits policy to get elected. This is disappointing, when the obvious middle ground was to simply cap the amount of annual cash refunds any taxpayer can receive at $5000 or $10,000.

The Parliamentary Inquiry on Labor’s franking credits policy moves to Melbourne this week and I might even try to drop into Malvern Town Hall at 10am tomorrow to observe proceedings. There will be four hearings in Victoria, with all the details available here.

Come along to the ASA annual conference

Back on the ASA conference, I’ll be chairing the traditional closing discussion, a one hour “grill the chairman” session, this time featuring CSL chair Brian McNamee, Telstra chair John Mullen and Sally Pitkin, the current chair of Super Retail Group who has also sat on a range of other boards.

Unlike the exorbitant prices paid to hear Chris Bowen speak, the ASA early bird registration rate of $450 is tremendous value and closes on March 31. Why not become an ASA member, come to the two day conference and then stay for the AGM on May 21. The full conference program is available here.

Should there be age limits on directors and executives any more?

The decision by KPMG to buy Ferrier Hodgson has brought into sharp relief the KPMG policy of forcing partners to retire at the relatively young age of 58.

The 20 Ferrier Hodgson partners are being granted an exemption, and rightly so.

This anachronistic policy probably explains why there are more former KPMG partners on the professional director circuit than the other Big Four accounting firms. They all seem to get given the boot early, to allow the next generation through to share in the spoils.

Thankfully, there is no such provision with most public company boards.

Indeed, it was John Howard who abolished the requirement for annual re-election of directors over the age of 72. He did that shortly after the turn of the century when Rupert Murdoch, Frank Lowy and his own brother Stan Howard were all at or approaching the age of 72.

It is important to not have age discrimination in the community and, for mine, the bigger problem is tenure of directors not age.

But, it is still useful to have age disclosure of directors, particularly as you assess board diversity.

As a good example of best practice disclosure of information about directors, check out the way ANZ does it.

You’ll be surprised how many companies don’t disclose some of these many metrics listed by ANZ about its directors, namely: age, qualifications, career background, city of residence, nationality, committees, other past boards, other current boards, when appointed to ANZ board.

Arguably the only thing missing is where the individual director’s skills fit into the board skills matrix, plus the annual pay, although that is disclosed in the annual report.

When it comes to directors, I’m all for maximising disclosure and wouldn’t support removing any of these metrics. When you compare this with what goes on in the unlisted space, you realise just how good public company investors have it on the disclosure front.

For instance, many of these big pokies clubs that I look at, only provide a list of directors using their initials, so you can’t even easily work out their gender, because they often don’t publish photos either.

As for discovering pay, skills, committees and the like, forget it.

Update on the last day deluge brigade who were suspended for not reporting

The last edition of The Mayne Report covered the final day deluge of results during the interim reporting season, so here is a brief update on the 11 companies which were suspended for missing the deadline. Only 4 of them have still failed to report:

Aneka Tambang: apologised for being late and then finally dropped the accounts on March 11, so trading resumed on March 12.

Carnegie Clean Energy: apologised for being late, then reported a $45 million loss on March 6, copped a funding termination from the WA Government a couple of days later and called in the voluntary administrators on March 13. You can see it all roll out here.

IBuynew Group: apologised for being late, then reported a $3.46 million loss on March 8, when trading resumed.

JatEnergy: managed to gets it $21.2 million loss out at 10.57am on Friday March 1, so it was reinstated on March 4, thereby only missing a day of trade.

Manalto: the social media manager never explained why it was late but dropped out a $1.13 million loss on March 7, prompting reinstatement.

Rubicor: at first predicted the results would be out within a week, but then delayed again on March 12, stressing this was “no reflection of business operations or performance”.

Story-I Ltd: revealing a $1.23 million profit at 12.14pm on Friday, March 1, so was back trading on the Monday morning on.

Simavita: total silence since the suspension. Does the company still operate? At least the other 10 suspended companies have all at least lodged a subsequent announcement of some sort with the ASX.

Silver Heritage Group: released this statement at 3.40pm on March 1 disclosing irregularities in Nepal and that one of its casinos in Vietnam had been shut, but there is still no sign of the actual accounts so the stock remains suspended. Has been radio silence for the past two weeks.

VIP Gloves: the only announcement has been this March 14 statutory debt to equity conversion filing so very poor communication with shareholders.

Yellow Brick Road Holdings: as the stock was suspended on March 1 it blamed an impending write-down related to trailing commissions and the banking Royal Commission, generating plenty of media given the high profile of key shareholder Mark Bouris. Reinstated on March 8 after releasing a $34 million loss on March 7.

Coles exits the pokies, should Woolworths follow suit? And what about the Victorian RSL?

Wearing the anti-gambling hat, we had a great win recently when Coles divested its pokies division to the Australian Venue Company, a business founded by former Spotless CEO Bruce Dixon but now controlled by private equity giant KKR.

This has triggered further debate about whether Woolworths will do the same, as the investment bankers it has appointed reportedly haggle with pokies billionaire Bruce Mathieson over what would be the best way to structure a Woolworths exit from their ALH joint venture.

It’s a difficult issue for Woolworths because the retail liquor business is pivotal to its success, delivering a growing proportion of EBIT, particularly now that fuel has been divested.

The main attraction for Woolworths buying ALH back in 2004 was to secure a land bank of hotels that would allow it to roll out more Dan Murphy and BWS retail liquor outlets. That has now been achieved in spades, with the latest results even suggesting we have potentially reached peak Dan Murphy’s.

Effectively, Woolworths is embroiled in divestment campaign on the pokies, not unlike what the coal industry is facing.

Interestingly the Victorian RSL is also facing a pokies divestment campaign, this time from a group of younger veterans, as was explained in this recent Royce Millar article in The Age.

The July 4 Victorian RSL state congress sounds like it will be a real doozy with board control and loads of constitutional amendments in play.

AMP, still not too late for shareholders to approve controversial life sale

AMP shareholders may have been denied a vote on the upcoming sale of its life insurance business, but they will get to vote on some new directors at the upcoming AGM in Sydney on May 2. Don’t be surprised if there is a big protest vote against new chairman David Murray, partly because he’s refused to request shareholder approval for the life insurance divestment.

Ian Rogers from Banking Day produced an interesting take on the situation last week, strongly arguing that shareholders should be invited to approve the deal. Indeed they should.

It is interesting that CBA and NAB have both delayed the proposed demergers of their respective wealth arms. Such a divestment by way of demerger would have required shareholder approval, whereas trade sales would be less likely, because the wealth divisions don’t represent a meaningful chunk of the overall businesses run by CBA and NAB.

Based on the account, the AMP life business was supposedly worth $5 billion – but then it was sold for something closer to $3 billion. Given this was such a shock haircut, shareholder approval should have been forthcoming.

Afterpay update – David Hancock history and how do they keep defaults so low?

Further to the commentary about Afterpay in the last edition of The Mayne Report, I should have added that the governance concerns also extend to the track record of executive director David Hancock, who was the chairman of Freedom Insurance, an outfit which was savaged at the Hayne Royal Commission and has seen its share price crash to just 2c.

Hancock only left the Freedom board last November, with the explanation to the ASX being that he wanted to focus on executive management commitments at other companies, obviously Afterpay.

Well, yes, but what about resigning to show accountability for the disaster which unfolded at Freedom on his watch, which was exposed at the Royal Commission for having dreadful life insurance selling practices.

Have a look at page 4 of the 2018 annual report when Hancock painted a particularly rosy picture of Freedom Insurance in his chairman’s address to shareholders.

That was lodged with the ASX just one day after Freedom told shareholders it has been listed as a case study to be explored at the Royal Commission, which later turned into a company-destroying event.

Freedom floated in December 2016 raising around $15m at 35c, giving the company a market capitalisation of $83 million. It is now wallowing at 2c with little trade.

Meanwhile, the Afterpay juggernaut powers ahead with David Hancock serving as an executive director and the stock soaring back above $20 as it heads towards a new record high.

Despite the hype, we still don’t have an independent chairman or enough independent directors and I remain puzzled as to how Afterpay manages to keep its defaults so low whilst funding so many indebted millennials.

Suspect there will be more to come on this story.

Viva Energy’s in the money SPP

It has been quite a long time between drinks on the capital raising front but we finally managed to get an in-the-money SPP application away last week with the $15,000 Viva Energy REIT offer at $2.32.

The stock closed at 2.47 on Friday, suggesting a paper gain of about $1000 is on the cards.

As usual with in-the-money SPPs, there will potentially be the issue of scale backs as Viva has said it is offering a maximum of $10 million, although the board has discretion to expand that. This followed a $100 million institutional placement at $2.32 in February.

The Viva Energy REIT has about 5000 eligible retail shareholders so the maximum theoretical application is $75 million, which suggests a scale back is likely depending on how alert the investor base is to take up this opportunity.

The Viva Energy AGM is being held on May 23 in Melbourne, so if retail shareholders are treated unfairly there will always be the option of raising this in a public forum. Here’s hoping they lift the $10 million cap if there is strong demand.

Another SPP came onto the radar this week from death industry giant Invocare, which is offering the chance to buy $15,000 worth of shares at $14 before April 5. The offer is capped at $20 million and also has a VWAP pricing alternative, although it is only rounded down to the nearest cent. The stock was at $13.74 on Friday, but applicants might at least enjoy a rare win over the instos in securing shares below the recent placement price.

That’s all for now.

Thanks for reading this latest edition of The Mayne Report.

Keep doin’ ya best, Stephen Mayne